Last week, Singular Research initiated coverage on IEC Electronics Corp. (IEC) with a Buy rating. Over the past 5 years, IEC has delivered the best financial performance in contract manufacturing. In 2012, we expect more of the same on double-digit organic sales growth. Bill Jones, Singular's senior equity analyst covering the stock, has a $7.50 price target on the company. That presents an upside potential of about 45 percent based on where shares are currently trading.
Some of the reasons why we like IEC's prospects include its position as a niche player in electronic manufacturing services (EMS). The company has a unique value proposition of high-end products in the military, aerospace, medical, communications, and industrial sectors. EMS is traditionally a low-margin industry, but IEC's strategy has helped the company demonstrate what we fill has been the best financial performance in this space over the past several years .
IEC is also gaining share in the fast-growing medical sector, as evidenced by the 140-percent revenue from the segment in 2011. The medical business segment now represents nearly one-quarter of IEC's total sales, which is remarkable considering that it was negligible just a few years ago.
Shares of IEC are currently trading at 7.7x 2012 estimated earnings per share and 6.1x EPS estimates for 2013. The company also has significant net operating losses, which will substantially offset taxes for several years. We feel that our current price target of $7.50 is pretty conservative, pricing shares at 11.9x 2012 earnings estimates, and 9.4x EPS estimates for 2013.
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